‘Despite ESG, financing will find its way to coal’

World Coal Association CEO Michelle Manook: ’Coal … ought to be allowed to compete.’

The collective bailing out of coal by investors, mesmerised by ESG, will not kill coal. Instead it will set off a change in the players funding coal. Away from the noise around COP26, private equity and big Asian funders are coming forward. So says Michelle Manook, CEO of the World Coal Association.

On Thursday, almost on cue, Australian coking and thermal coal miner and exporter Whitehaven revealed plans for a $1bn capital raising in Asian debt markets to fund its growth.

Before Manook, an Australian in her 30s, took the job of running the WCA in London, she asked questions: “One is, are we still in denial about climate change and what is our commitment? And the other was, are there available technologies, particularly for clean power, that would qualify us to be part of the discussion on energy transition?”

No, the World Coal Association was not in denial, it had signed up to the Paris Agreement years ago and yes, there were indeed the technologies.

That was almost three years ago. Every day since then, she goes another round in pushing back against the thinking that coal should be wiped off the map.

“If COP26 doesn’t put back on the table the issues of energy security, energy stability, affordability, then I’m not sure what the realistic solution is down the track,” she says. Manook believes that global investment in future will hinge on sustainable development goals and not the narrow ESG that preoccupies markets.

At COP26 the ambition is to go further than the 2050 net zero emission commitments. Greta Thunberg will be a headline act.

“Honestly, the coal industry can take some responsibility in this,” Manook admits. “We’ve let the debate get away from us. We have really not spoken to the total contribution of coal and we have not pivoted early enough to support the emerging and developing markets.”

The inconvenient truth Manook has on her side is that the world has yet to solve the issue of energy security, which most in the West see as a human right. Yet the energy transition agenda has been hijacked to make it that much harder for the coal industry to be part of the technology solution.

The whole coal value chain – coal to energy, coal to cement, coal to steel – is overlooked. And support for investment in low emissions and clean technologies in coal has been outgunned by the politically charged push for renewables.

Almost comically in the month leading up to COP26, the wind stopped blowing across Europe and a gas crisis blew up, sending energy prices soaring and leaving energy security at the mercy of the Russians.

Michelle Manook says there is not a government or industry planner from a coal-producing nation who does not understand the decarbonisation journey and the need to participate. The World Coal Association believes there is a pathway towards zero emissions from coal. Timelines and technologies are different, however. That means a different pathway, she argues, which is a reality not accepted. “That respect and understanding is not there.”

For the World Coal Association and members like Anglo American, Aurizon, Whitehaven Coal, Peabody, Glencore and Adani, the most important reason coal must remain part of the solution lies in Asia, Africa and South America.

“Economic development and economic growth is critical to them and so is affordable energy and reliable energy. No one is going to pay more for less reliable energy. And the idea that they can just completely abandon a young fleet of coal assets without considering the available clean technologies that can be applied and are available, certainly from their perspective, is disrespectful. I see that gap of understanding, that lack of reality check in the debate widening.

“Future growth for the world economy will come from these developing emerging regions, so ESG can’t be a tick-box compliance exercise – it has to be a proper assessment of the facts that underpin that development.”

High on her list for a catch-up is Mathias Cormann, now Secretary General of the OECD, an organisation all about development. Cormann, who has had a conversion on the road to Paris, is now backing a global carbon pricing scheme. Manook admits he has a very difficult job. “From my own experience of working with Mathias, he would have a very pragmatic view about where things are going.”

After major investments in wind, solar and battery storage, money is pouring into hydrogen technology. Only a fraction of this is pegged to cleaning up coal through high efficiency low emissions (HELE) or carbon capture and storage (CCS).

“We know the technology works – but like everything, it’s the application of the technology,” says Manook. “Policy in the development banks and even in government is either opaque or it penalises a fossil fuel-type of clean technology. Level the playing field. Let people go and find the mechanisms that incentivise the development of whatever the clean energy or clean technology is required.”

In the US, thanks to tax credits offered in 2018 to manufacturers, there are at least 13 commercial-scale CCS plants with capacity for 25 million tonnes of CO2 a year. In Australia the government’s Clean Energy Finance Fund is banned from investing in coal technology.

In many ways, if beggars belief that anyone in 2021 would want to be chief lobbyist for a fuel that should only be burned in hell. So what prompted Manook to take the job?

“Probably my Dad,” she says. “I’m ethnic, born in Pakistan (or Bangladesh now), and European and Asian heritage. My parents saw poverty, saw war and came to Australia.”

She remembers her parents teaching respect, how lucky she was and that everything was precious. “Water, light, and not because they were poor – they were actually quite well off – but because they were surrounded by it and they had the sensitivity to it.”

Manook has worked at Woodside and Orica and in emerging markets. “I’ve seen first-hand what fossil fuels have done for communities. That’s not to say we don’t have some skeletons in our closet. We can always do better. But certainly the companies I have worked in have really attempted to be responsible, have done great things for local communities and economies.”

When headhunter Spencer Stuart proposed the World Coal Association role, she said he hadn’t appreciated how politicised the coal debate had become.

“My Dad sat down and said, ‘what’s the problem?’ And I said, ‘I don’t know what to do. This seems like a terrible thing’. I’d never popped my head above – I would be the person behind the scenes advising CEOs and boards. Dad said ‘you are at this point where you could do a job, or you could do something that means something. And coal means something to lots and lots of people. So go and make sure they do it better’.”

Manook’s job gets harder as ESG forces push company boards and funders to abandon coal. This week RBA deputy governor Guy Debelle warned that “simply shutting down parts of the economy is unlikely to deliver a socially optimal transition”.

The quickest way to get rid of an ESG problem is to sell it. BHP parted ways with the World Coal Association in 2018 over values.

This year BHP sold its 33 per cent stake in Columbian coal miner Cerrejon to Glencore. “Disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions,” said Glencore’s Ivan Glasenberg in a dig at BHP.

Glencore is committed to net zero by 2050, with an interim target of 50 per cent by 2035, from Scope 1 to 3. Both Glencore and Cerrejon remain World Coal Association members.

Manook says despite the war on coal, new players are there in the background. “It is private equity, and a lot more in Asia. Funders are emerging who are asking questions about UN sustainable development goals: how do I look at this asset less as a stranded asset and more as a strategic asset?”

She sees the UN goals as absolutely compelling and likely to become the investment case assessment for the future. “They hold up energy efficiency, alleviation of poverty, infrastructure, economic growth and provide guidance on how and what to look at. And if you look at energy efficiency, it captures clean technology, all technologies – fossil fuels and renewables – because everything should be on the table to provide the overall goals that underpin economic development and growth.”

Despite the headlines, investment in coal continues. According to the World Coal Association, in January 4488 institutional investors held investments totaling $US1.03 trillion ($1.4 trillion) in companies operating along the thermal coal value chain. The buyers of coal assets tell their own story, like South African company Thungela and Seriti, the 91 per cent black-owned energy company which bought all South32’s coal.

“Mike Teke, CEO of Seriti, last week said decarbonisation can’t come at the expense of development. That’s where the sustainable development goals sit,” says Manook.

In Australia, coal exports from Whitehaven support economies in South-East Asia and it is logical that CEO Paul Flynn, who is on the board of the WCA, is looking to Asia to fund growth. “We need more Paul Flynns to get out there and talk about their businesses in a loud and proud way, but also about what needs to happen responsibly,” Manook says.

And Australia still has an important part to play in supporting the new technologies in emerging markets. “There is a domestic policy and then an international policy that supports some very different directions. It’s very complex for governments everywhere on energy technology transition.”

For her industry Michele Manook sets a challenge. “It’s really up to the coal industry as a value chain. Globally there is a collective lack of ambition for coal and a collective lack of understanding in how we can unify in support of coal. It … ought to be allowed to compete.”